PowerPoint Presentation by Charlie Cook Part IV Strategic Perspectives in Entrepreneurship C h a p t e r 15 Introduction to Entrepreneurship, Ninth Edition The Final Harvest of a New Venture © 2014 Cengage Learning. All rights reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.

15–2 Harvesting the Venture: A Focus on the Future Harvest Plan Harvest Plan  Defines how and when the owners and investors will realize an actual cash return on their investment. Reasons for Harvesting Reasons for Harvesting  To maintain managerial control and succession for successful continued operations.  To initiate a “liquidity event” that will generate a significant amount of cash for the investors.  An IPO (initial public offering) has become a reality.  Most realistic opportunity is a sale of the business.

© 2014 Cengage Learning. All rights reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 15–3 Advantages and Disadvantages of Family Controlled Firms Advantages Advantages  Long-term orientation  Greater independence of action  Family culture as a source of pride  Greater resilience in hard times  Less bureaucratic and impersonal  Financial benefits  Knowing the business Disadvantages Disadvantages  Less access to capital markets may curtail growth  Confusing organization  Nepotism  Spoiled-kid syndrome  Paternalistic/autocratic rule  Financial strain  Succession dramas

© 2014 Cengage Learning. All rights reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 15–4 The Management Succession Strategy Management Succession Management Succession  Is the transition of managerial decision making  Is one of the greatest challenges confronting owners and entrepreneurs in privately held businesses. Research on private firms shows: Research on private firms shows:  Many go out of existence after 10 years; only 3 out of 10 survive into a second generation.  Only 16% make it to a third generation.  Their average life expectancy is 24 years, which is also the average tenure for founders of a business.

© 2014 Cengage Learning. All rights reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 15–5 Key Factors in Succession Forcing Events Forcing Events  Happenings that cause the replacement of the owner- manager: DeathDeath IllnessIllness Mental or psychological breakdownMental or psychological breakdown Abrupt departureAbrupt departure Legal problemsLegal problems Severe business declineSevere business decline Financial difficultiesFinancial difficulties Pressures and Interests Inside the Firm Pressures and Interests Inside the Firm  Family members  Nonfamily employees Pressures and Interests Outside the Firm Pressures and Interests Outside the Firm  Family members  Nonfamily elements

© 2014 Cengage Learning. All rights reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 15–6 Sources of Succession Major Questions: Major Questions:  Inside or outside successor?  Which entry strategy will be implemented?  How will power be transferred?  Can the successor to gain credibility with the firm’s employees? Types of Successors Types of Successors  Entrepreneurial successor  Managerial successor  Interim specialist

© 2014 Cengage Learning. All rights reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 15–7 Developing a Succession Strategy Time Type of Venture Entrepreneur’s Vision Capabilities of Managers Environmental Factors Understanding the Contextual Aspects

© 2014 Cengage Learning. All rights reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 15–8 Developing a Succession Strategy (cont’d) Carrying Out the Succession Plan Carrying Out the Succession Plan  Identify a successor  Groom an heir  Agree on a plan  Consider outside help

© 2014 Cengage Learning. All rights reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 15–9 Creating a Written Succession Strategy Types of Succession Strategies Types of Succession Strategies 1.The owner controls the management continuity strategy entirely. 2.The owner consults with selected family members. 3.The owner works with professional advisors. 4.The owner works with family involvement. 5.The owner formulates buy/sell agreements at the outset of the firm, or soon thereafter, and whenever a major change occurs. 6.The owner considers employee stock ownership plans (ESOPs). 7.The owner sells or liquidates the business when losing enthusiasm for it but is still physically able to go on. 8.The owner sells or liquidates after discovering a terminal illness but still has time for the orderly transfer of management or ownership.

© 2014 Cengage Learning. All rights reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 15–10 The Exit Strategy: Liquidity Events Entrepreneurs consider selling their venture for numerous reasons: Entrepreneurs consider selling their venture for numerous reasons:  Boredom and burnout  Lack of operating and growth capital  No heirs to leave the business to  Desire for liquidity  Aging and health problems  Desire to pursue other interests

© 2014 Cengage Learning. All rights reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 15–11 The Initial Public Offering (IPO): Prospectus History and nature of the company History and nature of the company Capital structure Capital structure Description of any material contracts Description of any material contracts Description of securities being registered Description of securities being registered Salaries and security holdings of major officers and directors and the price they paid for holdings Salaries and security holdings of major officers and directors and the price they paid for holdings Underwriting arrangements Underwriting arrangements Estimate and use of net proceeds Estimate and use of net proceeds Audited financial statements Audited financial statements Information about the competition with an estimation of the chances of the company’s survival Information about the competition with an estimation of the chances of the company’s survival

© 2014 Cengage Learning. All rights reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 15–12 Annual Reports: Disclosure Requirements Audited financial statements: balance sheets for the past 2 years and income and funds statements for the past 3 years Audited financial statements: balance sheets for the past 2 years and income and funds statements for the past 3 years Five years of selected financial data Five years of selected financial data Management’s discussion and analysis of financial conditions and results of operations Management’s discussion and analysis of financial conditions and results of operations A brief description of the business A brief description of the business Line-of-business disclosures for the past three fiscal years Line-of-business disclosures for the past three fiscal years Directors and executive officers Directors and executive officers The market in which the firm’s securities are traded The market in which the firm’s securities are traded Range of market prices and dividends for each quarter of the two most recent fiscal years Range of market prices and dividends for each quarter of the two most recent fiscal years An offer to provide a free copy of the 10-K report An offer to provide a free copy of the 10-K report

© 2014 Cengage Learning. All rights reserved. This edition is intended for use outside of the U.S. only, with content that may be different from the U.S. Edition. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part. 15–13 SEC-Required Forms Form S-1 Form S-1  Information contained in the prospectus and other additional financial data Form 10-Q Form 10-Q  Quarterly financial statements and a summary of all important events that took place during the three-month period Form 8-K Form 8-K  A report of unscheduled material events or corporate changes filed with the SEC within 15 days after the end of a month in which a significant material event transpired Proxy statements Proxy statements  Information given in connection with a proxy solicitation